Liquidity and Shareholder Activism

Forthcoming The Review of Financial Studies

48 Pages Posted: 16 Feb 2009 Last revised: 21 Jun 2014

Oyvind Norli

BI Norwegian Business School - Department of Financial Economics

Charlotte Ostergaard

BI Norwegian Business School, Department of Finance

Ibolya Schindele

BI Norwegian Business School; Central Bank of Hungary

Date Written: April 7, 2014

Abstract

Blockholders' incentives to intervene in corporate governance are weakened by free-rider problems and high costs of activism. Theory suggests activists may recoup expenses through informed trading of target firms' stock when stocks are liquid. We show that stock liquidity increases the probability of activism, but less so for potentially overvalued firms where privately informed blockholders may have greater incentives to sell their stake than to intervene. We also document that activists accumulate more stocks in targets the more liquid is the stock. We conclude that liquidity helps overcome the free-rider problem and induces activism via pre-activism accumulation of target firms' shares.

Keywords: Liquidity, Shareholder Activism, Proxy Solicitation

JEL Classification: G12, G14, G34

Suggested Citation

Norli, Oyvind and Ostergaard, Charlotte and Schindele, Ibolya, Liquidity and Shareholder Activism (April 7, 2014). Forthcoming The Review of Financial Studies. Available at SSRN: https://ssrn.com/abstract=1344407 or http://dx.doi.org/10.2139/ssrn.1344407

Oyvind Norli (Contact Author)

BI Norwegian Business School - Department of Financial Economics ( email )

Nydalsveien 37
Oslo, N-0442
Norway
+4746410514 (Phone)

HOME PAGE: http://www.bi.edu/research/employees/?ansattid=a0510249

Charlotte Ostergaard

BI Norwegian Business School, Department of Finance ( email )

Nydalsveien 37
Oslo, 0442
Norway
+4746410520 (Phone)

HOME PAGE: http://home.bi.no/charlotte.ostergaard/

Ibolya Schindele

BI Norwegian Business School ( email )

Oslo, 0442
Norway
+47 46 41 05 17 (Phone)
+47 46 41 08 01 (Fax)

Central Bank of Hungary ( email )

Szabadság tér 9.
Budapest, 1054
Hungary

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